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Auto-enrolment: time is running out

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16th Jun 2011
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The Pensions Regulator has urged accountants to spread the “know your date” message out to clients in response to the upcoming automatic enrolment challenge.

With less than a year to go until the initial roll-out, auto-enrolment is set to radically transform workplace pension saving. It will also require businesses to put forward a substantial upfront investment in HR, payroll and pensions processes and systems.

Speaking at the AIMS Conference this week the regulator’s Joanna Hancock focused her presentation on maximising compliance: "our goal is to educate and enable employers to fulfil their duties". [Employers' duties and detailed information on phasing can be viewed on the Pensions Regulator website.]

Around 10m employees will be affected by auto-enrolment - many of whom have never previously paid into a pension. This means employers will now face a number of challenges whether they are providing a pension for the first time, reviewing their benefit package or looking to expand an existing pension offering.

Hancock pointed out that the initial consideration facing employers will be the staging date, pointing out that "phasing will relieve the financial burden on employers”.

Tranches of employers will come on stream over a four-year period based on the size of the business and PAYE data. From 2012 the UK's largest employers will have to enrol all eligible workers into a qualifying scheme, with medium and small employers following in 2013.

Added to the phasing issue, the majority of the software and pension providers have yet to get to grips with the auto-enrolment requirements and in many cases the payroll process will require significant re-configuration.

Many employers might also decide to change their pension provider as part of the auto-enrolment solution, which could lead to capacity problems with the mainstream pension providers.

The National Employment Savings Trust (NEST) is set to launch later this year and has been designed to meet the requirements of auto-enrolment, acting as a ‘public option’ for employers either unable or unwilling to meet the minimum requirements with their own scheme.

Hancock also stressed that under the auto-enrolment legislation coercing or inducing employees to opt out is illegal, and that the regulator will have the powers to issue compliance notices, impose fixed and escalating penalties, as well as undertaking legal proceedings if required.

Last week the Pensions Regulator issued a checklist (PDF) providing trustees with an overview of what they might need to do to ensure that their scheme is ready to be used for auto-enrolment.

The checklist for trustees follows the regulator’s educational materials aimed at larger employers and their advisers, including detailed guidance, a five-page summary of the new duties and a five-step action checklist.

Susannah Hines, the regulator’s trustee propositions manager said: “For trustees, like employers, it’s important to know when these changes will take effect. Once trustees know their employer’s staging date they can assess what impact automatic enrolment will have, put in place a timetable for implementing any changes, and consider how to communicate these changes to scheme members.”

The auto-enrolment challenge will require input from a diverse group of stakeholders within larger organisations as well as negotiations with a developing external market.

These kinds of changes are expected to take months to fully implement, so now is the time to act.

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